Make An Investment Plan

How can you make an investment plan, so that you sleep soundly at night, no matter if the stock market moves up or down?

Asset allocation is the single most important determinant of portfolio return - upto 90% of your portfolio return depends on your asset allocation. So give it the importance it deserves. To find out more about asset allocation, click here. The secret to proper asset allocation is diversification. If your investments are well diversified, they are unlikely to suffer major ups and downs, because the different asset classes move differently in different market conditions. So take the time to ensure you have a well diversified portfolio. Find out more about diversification, click here.

Is it possible to be over diversified? In a single word, the answer is yes. By increasing the number of your investments, you increase the paper work associated with the investments, and at times the risk reduction provided by the additional investments may not justify the increase in time required to manage the investments. Most experts recommend investing in no more than 8 or 10 mutual funds or exchange traded funds at a time, provided there is not much overlap between the funds you invest in.

A word about buffer investments. When you receive a lump sum as bonus, gratuity or inheritance, how do you go about investing it? Buffer investments are just that - a buffer before you finally invest the lump sum you have received. To find out more about buffer investment, click here.

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